April 15, 2012:

The Kenya Petroleum Refineries Ltd (KPRL) will buy new blends of crude to boost profitability once it begins importing its own products for processing. Currently, the refinery mainly processes the more expensive Murban crude to produce a range of products, including petrol. Murban took up 99.68 per cent of the 1.73 million tonnes of crude oil shipped into the country for processing in 2011, according to statistics by the Petroleum Institute of East Africa (PIEA). This could change after July 1 when the refinery converts to a merchant facility that buys its own crude, processes it and sells refined products for the local and export markets. Presently, KPRL acts like a toll refinery where it processes crude on behalf of oil marketers for a fee.

“Murban crude is more expensive than other blends and that affects margins,” said KPRL managing director Bimal Mukherjee. “There are other cheaper blends that can be used to give desired products.” Analysts said that though Murban has for long been sought by refiners for its yield of diesel, deman for it has been falling due to lower profits. “Most people go for what best suits them in terms of margins. Refining is about value addition, it’s better to have an affordable raw material and improve it to the best quality and sell the end product at a reasonable price,” Mr Mohammed Baraka, a consultant on petroleum issues, said. The conversion of KPRL into merchant status will push its management to maximise on margins to stay profitable. Once the refinery starts processing its own crude, the move will free marketers to buy products from other international refineries as opposed to the current structure that requires them to process about 50 per cent of the monthly demand at the refinery.

“KPRL will now have to be proactive to market demands by picking the best selection crude that will fetch it returns,” Mr Baraka said. Last month KPRL said it had revised its upgrade programme and would focus on changing the model of the facility. Mr Mukherjee said they would negotiate with financiers for an urgent disbursement of $400 million (Sh33.2 billion) to fund conversion of the facility to the new model. The funds will be part of the $1 billion (Sh83 billion) required to fully upgrade the refinery. “We intend to tweak our earlier plans and give priority to converting the refinery into merchant status,” Mr Mukherjee told the Business Daily.

Conversion of the refinery into merchant status was postponed twice. Prime Minister Raila Odinga said last month that the planned conversion of the refinery was delayed due to lack of legal instruments. “Once the government has the laws in place we will push financiers to have the initial disbursement to fund the conversion of the refinery. The rest of the upgrade project work will follow later,” Mr Mukherjee, who represents India’s Essar Oil and Gas that won control of the refinery two years ago, said last month. The ownership of the plant is split between the government and Essar after Shell, BP, and Chevron put up their combined shareholding under a block sale. The plant will be upgraded for the first time since 1994 to produce four million tonnes from the current 1.6 million tonnes. It will also provide water desalination facilities and ensure that its products comply with international environmental standards.

By Business Daily